Author Topic: PAR - PAR Technology Corporation  (Read 9802 times)

walkie518

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Re: PAR - PAR Technology Corporation
« Reply #30 on: May 01, 2019, 02:04:38 PM »
One question i had regarding chains is will they use Brinks payment platform?  My guess is large chains have robust payment platforms already compared to small chains so using the conversion rate for a company like Toast and applying to brink may be highly overestimating.  I havent researched this so I'm curious if anyone else has any information.
Right, but GRUB can provide that too and delivery services...why not sign up for Caviar, Doordash, or Ubereats?

Food is fragmented outside of the chains and this business has growing competition, but the market is growing rapidly and PAR has been installing an ever-increasing number of kiosks...

I'm not sure im following.  Part of the bull thesis is proving a PoS payments service for restaraunts through Brink for Brink restaruants.  This is where the bulk of the valuation comes from in Brink's case correct?  My point is its easier for Toast to convert their PoS customers to payments because their target restauant is an independent operator with likely insufficient playment platform.  However it's likely that large chains will already have a payments platform they are confortable with and will not switch to Brink payements unless their payment service disrupts the payment industry in the same way their cloud PoS was an advancement over earlier hardware based PoS software (which seems unlikely as cloud/software based payment providers like square exist already).

I think the investment thesis is that Par needs to raise capital to build out the business but once it does the numbers look great. 

It appears that Singh is trying to address cash flow problems and shed light on the underlying value of the businesses.

Getting the boxes installed is where there has been a backlog to my understanding.  Adding functionality unlocks additional value and should be easier once the boxes are where they need to be or old boxes get converted.

My point on GRUB is that it's a competitor offering a delivery network or allowing restaurants to do it themselves but use its delivery platform.  This doesn't mean that restaurants won't do both but it's something to keep in mind when reviewing the space?

Probably fair to say that the Tier-1 customers don't have two boxes at each location (Toast and Par), but the restaurant business is highly fragmented and there are plenty of locations to install new boxes while enterprise is certainly best bang for the buck?


cameronfen

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Re: PAR - PAR Technology Corporation
« Reply #31 on: May 01, 2019, 03:08:17 PM »
^^ I think we are talking about different things. When I say PoS I mean Brink's current offering, namely scheduling tables putting in orders etc.  I did the modeling a while ago and even if you are very optimistic about PoS, based on ARPU numbers and reasonable margins, this does not justify PARs valuation (after adding the other parts as well).  The reason PARs valuation is so high, is because they are going to roll out a payments platform (ie processing credit cards and the like, like square).  Am I correct in reading this from there presentations?  Payments is much more lucrative than PoS mostly because Brink revenue per store is much higher (roughly 20k vs 5k and perhaps more for chains as they have higher transaction value per store). Additionally the bulls argue that since these stores are using Brink PoS they are sort of like captive customers for payments or at least have strong synergies.  And typically they cite Toast as an example of how quickly a payments platform can grow when you already are the PoS provider.  However Toast focuses on independent restaurants (ie not chains). Most of these large chains already have a robust payments provider and my guess is if the payments platform they are running is non competitive with something like square then they would switch to the enterprise version/equivalent of square (if that exists.  awesome for PAR if it doesn't).  Independant restraunts likely only have a terminal through mastercard and no other frills on their payment platform, my guess is mcDonalds or Dairy Queen already has a robust payment platform because these are large companies.  That means it may be much more difficult for Brink to cross sell these companies onto their payment platform compared to Toast. 

In my mind there is significant disynergies from using a Brink payment platform for some transactions and a legacy payment for others, which is why I dont understand the Grubhub comment.  The same holds for a PoS platform which I think you alluded to. 

whistlerbumps

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Re: PAR - PAR Technology Corporation
« Reply #32 on: May 02, 2019, 07:15:38 AM »
^^ I think we are talking about different things. When I say PoS I mean Brink's current offering, namely scheduling tables putting in orders etc.  I did the modeling a while ago and even if you are very optimistic about PoS, based on ARPU numbers and reasonable margins, this does not justify PARs valuation (after adding the other parts as well). 

Why do you think current offering doesn't justify PAR's valuation.... 20k units by end of 2020 at 2.5k ARPU (which could be low) is 50mln of SaaS revs.... 10x revs given continued growth opportunity and low churn is 500mln or $26 per share just for Brink.... low-mid 30s when you add in the other parts.  I'd be interested where you differ.

cameronfen

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Re: PAR - PAR Technology Corporation
« Reply #33 on: May 02, 2019, 10:45:32 AM »
^^ I think we are talking about different things. When I say PoS I mean Brink's current offering, namely scheduling tables putting in orders etc.  I did the modeling a while ago and even if you are very optimistic about PoS, based on ARPU numbers and reasonable margins, this does not justify PARs valuation (after adding the other parts as well). 

Why do you think current offering doesn't justify PAR's valuation.... 20k units by end of 2020 at 2.5k ARPU (which could be low) is 50mln of SaaS revs.... 10x revs given continued growth opportunity and low churn is 500mln or $26 per share just for Brink.... low-mid 30s when you add in the other parts.  I'd be interested where you differ.

So as of their most recent most recent ir presentation they grew new PoS adds by 800 in Q4.  In order to get net adds by 2020, multiply by 8.  That results in only 14.1k in restaurants.  Note that is being agressive, because they added around 4k restraunts this year which comes out to 1k per quarter so net adds are declining over time.   I know dairy queen is going to be big in terms of arpu and adds, however I was pretty aggressive in assuming no decline in net adds.  Also I think ARPU at 2.5k is aggressive as that implies 40% growth in arpu in 2 years. 

Further more the 10x multiple is too high.  I think as their SaaS gross margin is only 23%.  Shave off 10% (arbitrarily but conservative) for operating expenses and you have something that has a net profit margin of 15%ish.  That means you are paying something like 70x earnings for something growing at 15-25% a year (depending on how slow net adds decline).  You also have to discount that price back to current day which subtracts 15% off the value.   All in fair value 14.1k2.25k = 32m.  At 15% net profit = 5 million.  At 50x pe = 250 million.  Discounted back to today: 212 million.  Leaves about 180 million for defense + payments. 

This thing still could be fairly valued or slightly undervalued.  But I dont have confidence in my numbers up or down.  The other thing to take into account is that they likely dont have capital to grow without either taking more leverage or shares, so you have to factor in EV dilution and interest costs in the model too.
« Last Edit: May 02, 2019, 10:53:51 AM by cameronfen »

whatdadil9

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Re: PAR - PAR Technology Corporation
« Reply #34 on: May 02, 2019, 11:12:04 AM »
SAAS gross margin is not 25 percent.

Second of all. Onboards were slowed down because they needed to some replatforming to scale up --- happens in SAAS all the time. Company has made it clear growth will re accelerate. Pricing will happen.. Also believe Raising prices on core customers will happen too. Think steady state operating margin assumptions are wrong and this makes more sense to DCF longer term. TAAM, Penetration, steady state margin, dicsount back.

whistlerbumps

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Re: PAR - PAR Technology Corporation
« Reply #35 on: May 02, 2019, 11:14:57 AM »
^^ I think we are talking about different things. When I say PoS I mean Brink's current offering, namely scheduling tables putting in orders etc.  I did the modeling a while ago and even if you are very optimistic about PoS, based on ARPU numbers and reasonable margins, this does not justify PARs valuation (after adding the other parts as well). 

Why do you think current offering doesn't justify PAR's valuation.... 20k units by end of 2020 at 2.5k ARPU (which could be low) is 50mln of SaaS revs.... 10x revs given continued growth opportunity and low churn is 500mln or $26 per share just for Brink.... low-mid 30s when you add in the other parts.  I'd be interested where you differ.

So as of their most recent most recent ir presentation they grew new PoS adds by 800 in Q4.  In order to get net adds by 2020, multiply by 8.  That results in only 14.1k in restaurants.  Note that is being agressive, because they added around 4k restraunts this year which comes out to 1k per quarter so net adds are declining over time.   I know dairy queen is going to be big in terms of arpu and adds, however I was pretty aggressive in assuming no decline in net adds.  Also I think ARPU at 2.5k is aggressive as that implies 40% growth in arpu in 2 years. 

Further more the 10x multiple is too high.  I think as their SaaS gross margin is only 23%.  Shave off 10% (arbitrarily but conservative) for operating expenses and you have something that has a net profit margin of 15%ish.  That means you are paying something like 70x earnings for something growing at 15-25% a year (depending on how slow net adds decline).  You also have to discount that price back to current day which subtracts 15% off the value.   All in fair value 14.1k2.25k = 32m.  At 15% net profit = 5 million.  At 50x pe = 250 million.  Discounted back to today: 212 million.  Leaves about 180 million for defense + payments. 

This thing still could be fairly valued or slightly undervalued.  But I dont have confidence in my numbers up or down.  The other thing to take into account is that they likely dont have capital to grow without either taking more leverage or shares, so you have to factor in EV dilution and interest costs in the model too.

Hi Cameron,  Thanks for the thoughts but I disagree with most of your numbers. 

1) Units.  8k total +6k DQ + 6k from another tier 1 that they expect to transition in 2019 (Q4 18 CC) is ~20k by 2020 without any other wins.  The company also notes that the concepts they have signed have ~17k total sites which doesn't include SMB or the 2nd tier 1. Historically, Brink has been resource constrained under Sammon family leadership but now with Savneet and the capital raise, they are well resourced to more aggressively go after the 300k+ unit TAM.
2) ARPU is currently artificially low due to Arby's deal being below normal ARPU because it was a huge reference deal for them.  Savneet has noted (Jan 2019 pres) that DQ deal will have higher ARPU. Normalizing ARPU and adding on new modules (Par Pay, payment processing etc) can easily get you to $2500+.
3) Brink is a high quality SaaS business with normal SaaS gross margins  (~70% currently with an aim towards 80% as the company reaches scale).  Not sure where you got the 23% number.

NoCalledStrikes

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Re: PAR - PAR Technology Corporation
« Reply #36 on: May 02, 2019, 11:22:08 AM »
I am a little dubious on the Dairy Queen numbers.  The total store count sounds right (7000 or so), but only 70% are U.S. based and of those many have 50+ year old franchise agreements which give the store owners leeway to say no to corporate initiatiaves.  My guess is that at most only half of the 4900 stores would sign-up.  2450 is still a nice sale, but its not 7000.

cameronfen

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Re: PAR - PAR Technology Corporation
« Reply #37 on: May 02, 2019, 11:45:56 AM »
^^ I think we are talking about different things. When I say PoS I mean Brink's current offering, namely scheduling tables putting in orders etc.  I did the modeling a while ago and even if you are very optimistic about PoS, based on ARPU numbers and reasonable margins, this does not justify PARs valuation (after adding the other parts as well). 

Why do you think current offering doesn't justify PAR's valuation.... 20k units by end of 2020 at 2.5k ARPU (which could be low) is 50mln of SaaS revs.... 10x revs given continued growth opportunity and low churn is 500mln or $26 per share just for Brink.... low-mid 30s when you add in the other parts.  I'd be interested where you differ.

So as of their most recent most recent ir presentation they grew new PoS adds by 800 in Q4.  In order to get net adds by 2020, multiply by 8.  That results in only 14.1k in restaurants.  Note that is being agressive, because they added around 4k restraunts this year which comes out to 1k per quarter so net adds are declining over time.   I know dairy queen is going to be big in terms of arpu and adds, however I was pretty aggressive in assuming no decline in net adds.  Also I think ARPU at 2.5k is aggressive as that implies 40% growth in arpu in 2 years. 

Further more the 10x multiple is too high.  I think as their SaaS gross margin is only 23%.  Shave off 10% (arbitrarily but conservative) for operating expenses and you have something that has a net profit margin of 15%ish.  That means you are paying something like 70x earnings for something growing at 15-25% a year (depending on how slow net adds decline).  You also have to discount that price back to current day which subtracts 15% off the value.   All in fair value 14.1k2.25k = 32m.  At 15% net profit = 5 million.  At 50x pe = 250 million.  Discounted back to today: 212 million.  Leaves about 180 million for defense + payments. 

This thing still could be fairly valued or slightly undervalued.  But I dont have confidence in my numbers up or down.  The other thing to take into account is that they likely dont have capital to grow without either taking more leverage or shares, so you have to factor in EV dilution and interest costs in the model too.

Hi Cameron,  Thanks for the thoughts but I disagree with most of your numbers. 

1) Units.  8k total +6k DQ + 6k from another tier 1 that they expect to transition in 2019 (Q4 18 CC) is ~20k by 2020 without any other wins.  The company also notes that the concepts they have signed have ~17k total sites which doesn't include SMB or the 2nd tier 1. Historically, Brink has been resource constrained under Sammon family leadership but now with Savneet and the capital raise, they are well resourced to more aggressively go after the 300k+ unit TAM.
2) ARPU is currently artificially low due to Arby's deal being below normal ARPU because it was a huge reference deal for them.  Savneet has noted (Jan 2019 pres) that DQ deal will have higher ARPU. Normalizing ARPU and adding on new modules (Par Pay, payment processing etc) can easily get you to $2500+.
3) Brink is a high quality SaaS business with normal SaaS gross margins  (~70% currently with an aim towards 80% as the company reaches scale).  Not sure where you got the 23% number.

On 1: see nocalledstrikes comment and note on the q4 presentation that they only have roughly 50% or less of most of the big chains.  They are only in 50% mcdonalds etc.  So while Scott Miller made this assumption that they would be in all DQs unless he knows something I dont/overlooked, this is not a valid assumption to make.  Thus I think being aggressive with net adds projection is the way to go to model this as it is the base rate.  Note if I assume 800 net adds a quarter for 8 quarters this implies a bump up the next couple quarters assuming some decline. 

2.  I have no idea on what actual arpu is but my guess is if the DQ deal is large then Arpu will be lower and same vice versa as DQ probably has bargining power like Arby's.  Further more i am only modelling Brink PoS valuation and i put payments basically in the residual and too hard catagory.  This is basically my point origionally that payments conversion rate may be much lower for Brink than Toast.  But again I dont know and considering there is no revenue: too hard. 

3.  The 23% number comes from the annual report.  Total revenue from product and service is 132 million dollars.  I assumed from a quick look at the notes that these were PoS revenue but even if the mix is different doesnt change much (product has 23% gm and services has 24%).   total cogs for product and service is 102 million dollars.  Thus gross margin is roughly 23%.  Maybe there are some fixed costs and gm will get better, but I think I was quite conservative on the opex margin.  Keep in mind this is pretty competitive industry as well.  Also note the revenue is quite large already so its not as if fixed costs should take a innordinate amound of cogs. 

4.  Regarding what's comment about acceleration of growth maybe you are right, but my experience is with SaaS companies less than half the time can they reaccelerate growth but they promise to reaccelerate growth every time.  If you want to add in the extra 5k adds.  After taking into account the extra captial required to fund this and the origional growth you may get 40m in value.  If payments is good then it is undervalued.  If payments is bad its fairly valued.  I think 20k is very agressive but if you think that its either 40/60 dead money, slightly higher than market beating irr (imo).   

edits:  Added point four and minor clarification of points
« Last Edit: May 02, 2019, 12:02:20 PM by cameronfen »

whistlerbumps

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Re: PAR - PAR Technology Corporation
« Reply #38 on: May 02, 2019, 01:42:16 PM »
On units you can believe what you want.  I would argue that they are still signing up more Arby's and other existing logos.  Also DQ is offering a lot of corporate promotions to get franchisees to switch because having everyone on one system will lower costs and improve systemwide data analysis.  Also assumes that they don't sign any other new chains.   Also remember this is an EOY 2020 number we are talking about so there is still a lot of time for implementation.  I think 20k is a reasonable estimate but that';s me.

On ARPU, I would direct you to Savneet's comments from the Jan 2019 Needham Conference.
"Our ARPU per store is around $1,900. We expect this to actually increase as we grow. The average is actually lower because we do a large deal with Arby's, which was below our historic ARPU but our next large chain, which is much larger than Arby's, is actually going to be higher. And as I mentioned, it will grow because we're also adding new modules to what we're doing. "

23% is just wrong .  Its taking the margins of a low-margin hardware and services business (majority of PAR's historical revs) and applying it to a SaaS business.  It's complete apples-oranges.

You may be right although I believe Brink actually having capital will be a major factor in the re acceleration. 

cameronfen

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Re: PAR - PAR Technology Corporation
« Reply #39 on: May 02, 2019, 03:11:30 PM »
On units you can believe what you want.  I would argue that they are still signing up more Arby's and other existing logos.  Also DQ is offering a lot of corporate promotions to get franchisees to switch because having everyone on one system will lower costs and improve systemwide data analysis.  Also assumes that they don't sign any other new chains.   Also remember this is an EOY 2020 number we are talking about so there is still a lot of time for implementation.  I think 20k is a reasonable estimate but that';s me.

On ARPU, I would direct you to Savneet's comments from the Jan 2019 Needham Conference.
"Our ARPU per store is around $1,900. We expect this to actually increase as we grow. The average is actually lower because we do a large deal with Arby's, which was below our historic ARPU but our next large chain, which is much larger than Arby's, is actually going to be higher. And as I mentioned, it will grow because we're also adding new modules to what we're doing. "

23% is just wrong .  Its taking the margins of a low-margin hardware and services business (majority of PAR's historical revs) and applying it to a SaaS business.  It's complete apples-oranges.

You may be right although I believe Brink actually having capital will be a major factor in the re acceleration.


1.  Look penetration for big chains averages 65% or so.  This is slide 24 on the q4 presentation.  These were also the numbers management wanted us to see.  Based on the TAM of 4900 DQ stores (I'm going on NoCalledStrikes unverified by me numbers), you have something like 3000 stores.  That's nice but not 7k.  Furthermore, net adds declined something like 33% from Q1 2018 to Q4 assuming 1k average net adds a quarter average, as if the quarter starts off at 1.2k stores adds a constant decline rate results in 800 adds in q4.  Maybe the management can turn this around a bit, but in order to get to your 20k number you need 1.5k a quarter for the next 8 quarters (which is EOY 2020) which is higher than the net adds in q1 2018.  That's quite heroic. 

2.  I feel like on ARPU we are arguing about 2.5k vs 2.25k.  There are more important things to argue about. 

3.  Yes mea culpa.  I forgot Brink included legacy.  I'm not sure what the cost structure will be but you are right gross margins will certainly be higher than 23%. 

Alternative thoughts on modeling:

On the one hand, Square subscription revenue does have 70% gross margin (and yes I get Square is in payments not PoS but I'm guessing to design and sales of the app requires the same costs (they break out transaction revenue too in a different bucket)).  This gets slightly lower if you include hardware sales which are done at a loss.  Note that while this bodes positively, if you look at net profit for Square after taking out 100m of the 133m in marketing costs somewhat arbitrarily and taxing at 20%, you have a net profit margin of +5% only. 

Looking at Toast which is the closest comp (and is not public), from this site: https://reformingretail.com/index.php/2018/07/19/toasts-115m-raise-should-worry-them-more-than-it-worries-their-competitors/.  Note I use their numbers as a baseline but I modified them somewhat to be more conservative/accurate imo.  They peg 12.5k PoS for Toast, which I don't have any insight into but it seems in the right ball park as I know Toast is somewhat bigger than Brink.  At 2.5k ARPU this comes out to 30m in revenue now. They already have 1000 employees and hired 500 more for growth.  Assuming only the 1k employees and assume 200 are engineers with an all in cost (salary + benefits + necessary capital + rent + software...) of 200k.  The other 800 are sales and support at 70k all in cost (this might be low but the 200k might be high.  I'm not sure).  This comes out to be 96m in total costs.  They are losing tons of money according to this model.  Say they only need 50% of the 1k staff to maintain 12.5k Pos locations (or alternatively cost per employee cut by 50%), this is still losing 18m a year.  The economics aren't great, obviously if Brink or Toast scale they will grow employees at a slower rate, but again growth looks already to be slowing down for Brink so I'm not sure if they will reach the scale necessary to have great Saas economics.  I don't remember how I modeled it when I sold out a couple of months or a half year ago, but my guess is its something similar to this.